RBS 2011 Annual Report Download - page 31

RBS Group 2011 29
Performance highlights 2011 2010
Operating loss before impairment losses (£m) (284) (29)
Impairment losses (£m) (3,919) (5,476)
Operating loss (£m) (4,203) (5,505)
Risk-weighted assets (£bn) 93.3 153.7
Non-Core Division is central to the Group’s
Strategic Plan. We are the primary vehicle for
reducing risk and the size of the balance
sheet. Non-Core allows the rest of RBS to
focus on our strong customer franchises. Since
we created the division in 2009 we have cut its
assets by £164 billion.
When we cut the Group’s assets, we reduce:
•the amount of capital the Group needs to
hold. That can free-up capital to lend to
other customers;
•the Group’s reliance on short-term funding.
That makes us more resilient; and
•the risks the Group faces. That makes
us stronger.
We sold £22 billion of third party assets (TPAs)
and negotiated the repayment of £22 billion of
TPAs. This balance of asset sales and run-off
means that we are not dependent on one way
of reducing assets. That has been important in
difficult market conditions.
We paid more attention to reducing the assets
that most tie-up capital. These are mainly trading
assets in our Non-Core Markets business. This
has paid dividends. Our risk-weighted assets
(RWA) fell by £60 billion. It also helped us to
avoid having to find additional capital that we
would have needed to meet new regulations.
We reduced our derivatives portfolio by
£5 billion to £11 billion. It was £85 billion at the
start of 2009.
We have reduced the Non-Core Real Estate
portfolio by 49% since 2009 and in 2011 we:
•formed a partnership with Blackstone to
manage a fund of £1.4 billion of UK loans;
•sold our Spanish portfolio to Perella
Weinberg;
•sold hotels, including the remaining
properties in our Hilton hotel portfolio; and
•agreed to sell our tenanted pub portfolio to
Scottish & Newcastle.
We made good progress in our Portfolios &
Banking business. We exited more than 130
individual loans. That reduced TPAs by more
than £1 billion. We also agreed to sell a portfolio
of leveraged loans totalling £500 million.
We have now signed or completed almost all
of our individual business and country exits,
with only a handful to go. In 2011, we
completed the sales of our Argentinean
business to Banco Comafi S.A. as well as the
completion of the share sale of RBS
Uzbekistan to Korea Development Bank.
Our impairments fell again. That reflected the
reduction in assets as well as how we
managed the remaining portfolio. Although we
faced challenges in our real estate and Ulster
Bank portfolios, impairments were down by
£1.6 billion from 2010.
The performance of our ongoing businesses
improved. We reduced our cost base from
£2.3 billion last year to £1.3 billion in 2011,
mainly because our headcount fell through
country and business exits.
Our people continue to play a key part in the
Non-Core asset reduction programme. The
experience they have gained in the previous
three years means we have built a strong
knowledge base and skill-set. An important
part of our success will be how well we
manage our people as they come to the end of
their journey with Non-Core. We have
developed a bespoke programme of activities
to support them and their managers as they
begin to consider the next stage of their
career, here in RBS or elsewhere.
Our operating loss of £4,203 million in 2011
was £1,302 million lower than the loss in 2010.
The continued divestment of Non-Core
businesses and portfolios has reduced
revenue streams as well as the cost base. The
improvement in other income reported for 2011
reflected fewer losses on disposal and lower
downward valuation movements.
Rory Cullinan
Head of
Non-Core Division
Divisional review
Non-Core Division